Securities Industry Commentator by Bill Singer Esq

One Day In the Life Of Lanny Breuer (the Moscow Anti-Corruption Summit) - Revisited 11 Years Later (BrokeAndBroker.com Blog)

Founder Of Cyberfraud Prevention Company Pleads Guilty To Defrauding Investors Of Over $100 Million / Adam Rogas Raised $123 Million From Investors Using Financial Statements That Showed Tens of Millions of Dollars of Revenue and Assets that Did Not Exist (DOJ Release)

Queens Man Pleads Guilty in Multi-Million Dollar Prize Notice Fraud Scheme / Three Defendants Have Now Pleaded Guilty to Conspiracy to Defraud Consumers (DOJ Release)

SEC Charges Texas School District and its Former CFO with Fraud in $20 Million Bond Sale (SEC Release)

FTC Orders London-Based Swap Dealer to Pay $3.25 Million for Swap-Data Reporting, Conflicts of Interest, Mid-Market Mark, and Supervision Failures (CFTC Release)

Keynote of CFTC Chairman Rostin Behnam at the FIA Boca 2022 International Futures Industry Conference

Report From FINRA Board of Governors Meeting - March 2022 / Board Approves Rulemaking Items and Use of 2021 Fine Monies; Meets With SEC Chair Gary Gensler (FINRA Release)

FINRA Fines and Suspends Rep for Mismarking Mutual Fund Trades as Unsolicited

In the Matter of Steven Martin Barnett, Respondent (FINRA AWC)

FINRA Fines and Suspends Rep for Private Securities Transactions

In the Matter of Donovan Thomas Kelly , Respondent (FINRA AWC)

SEC Claims Review Staff Tortures Whistleblower With Denial of Eventual $14 Million Award (BrokeAndBroker.com Blog)

[F]rom August 2014 through August 2019, Gammon engaged in a direct-mail scheme that sent fraudulent prize notification mailings to thousands of consumers. The mailings induced consumers to pay a fee, purportedly in return for a large cash prize. None of the consumers who paid the fee ever received such a prize. Gammon is the third defendant to plead guilty to conspiracy to commit mail fraud in connection with this scheme.

Two other defendants previously pleaded guilty to conspiracy to commit mail fraud for participating in the scheme. Christopher King pleaded guilty on September 15, 2021 and Natasha Khan, pleaded guilty on December 15, 2021.

The SEC's complaint alleges that Crosby ISD, which serves approximately 6,400 students outside of Houston, failed to report $11.7 million in payroll and construction liabilities and falsely reported having $5.4 million in general fund reserves in its audited 2017 fiscal year financial statements. According to the complaint, Crosby ISD and Merka, who was responsible for Crosby ISD's accounting and was the primary contact during the bond financing process, were aware that the financial statements significantly underreported the payroll and construction liabilities. Crosby ISD and Merka knowingly included the false and misleading financial statements in the offering documents used to raise $20 million through the sale of municipal bonds in January 2018. In August of 2018, seven months after the offering, Crosby ISD disclosed that it was experiencing significant financial issues, including that it had a negative general fund balance. The following month, ratings agencies downgraded Crosby ISD's bonds. 

Lackey, who audited Crosby ISD's financial statements, authorized the issuance of the fiscal year 2017 audit report. Lackey was charged by the SEC with failure to perform critical audit procedures necessary to verify the accuracy of Crosby's payroll and construction liabilities. She also violated Generally Accepted Auditing Standards (GAAS) by failing to obtain sufficient appropriate audit evidence to support the audit opinion, failing to properly supervise the audit, and by failing to exercise professional judgment and maintain professional skepticism.

[B]etween February 2014 and July 2021, ED&F Man failed to report certain swaps data to an SDR accurately for hundreds of thousands of swaps. The order also finds that, from February 2014 through January 2018, ED&F Man failed to disclose to its U.S. swaps counterparties that proprietary traders, trading on behalf of an affiliate, had access to counterparties' trade information. Further, from February 2014 to April 2021, ED&F Man failed to disclose mid-market marks to some of its counterparties as required for numerous metals and FX swaps. The order also finds that ED&F Man failed to maintain an adequate supervisory system and to perform its supervisory obligations diligently with respect to swaps data reporting, conflict of interest disclosures, and providing mid-market marks. 

The issues that are top of mind and the focus of our energies in early 2022 are very much the same that we have dealt with before, but perhaps our demographics have changed.  The industry's population is shifting, having increasingly emerged from the technology sector rather than being firmly rooted in the financial markets.  We also have a massive influx of retail participants empowered by technology and an endless stream of information to pursue opportunities the moment any barrier to entry recedes.  And then there are the exchanges, intermediaries, and innovators who are eager to meet demand for products and services through increasingly nontraditional models that both give us pause, and inspire us to engage and explore new possibilities for fitness within the regulatory fold.

WASHINGTON-FINRA's Board of Governors met on March 9-10 for the first time in 2022. The Board approved three rulemaking items and discussed a variety of topics, including technology initiatives and matters pertaining to regulatory operations.

The FINRA Board discussed FINRA's multi-year effort to transform its registration and disclosure programs and received an update on the organization's ongoing Digital Experience Transformation, an initiative designed to integrate and simplify brokerage firms' digital interactions with FINRA, thus facilitating more efficient and effective compliance programs. The Board also received an update from FINRA's Member Supervision department, which recently published the 2022 Report on FINRA's Examination and Risk Monitoring Program, a library of information and resources to help firms inform their compliance programs.

As is customary for the first meeting of the year, the FINRA Board approved the allocation of prior-year fine monies to various capital initiatives in accordance with FINRA's Financial Guiding Principles. FINRA will release details about the allocations in an upcoming Report on the Use of 2021 Fine Monies.

The FINRA Board met with Securities and Exchange Commission Chair Gary Gensler. The Board often hosts SEC officials and various stakeholders during a portion of its meetings, and this was Chair Gensler's first visit with the FINRA Board.

"We were honored to hear Chair Gensler speak about the regulatory priorities of the Commission, which provided us with an opportunity to think about how they intersect with FINRA's regulatory priorities," said FINRA CEO Robert W. Cook. "We look forward to continuing to work with the SEC as we pursue our investor protection mission."

Rulemaking

The Board approved three rule proposals:

• Proposals Relating to Registration of Offices and Remote Inspections - The Board approved the submission to the SEC of several proposals related to member firms' supervision obligations and process-related changes in response to remote and hybrid work environments.

• Amendments Relating to Routing Disclosures for OTC Equity Securities and Centralized Hosting of SEC Rule 606(a) Reports - The Board approved the submission to the SEC of proposed rule amendments to require members to: (a) publish order routing reports for held orders in OTC equity securities and submit them to FINRA for publication on the FINRA website; and (b) submit Regulation NMS Rule 606(a) order routing reports to FINRA for publication on the FINRA website.

• Amendments to Rules Related to the Arbitration of Sexual Assault and Sexual Harassment Claims - The Board approved the submission to the SEC of proposed amendments to align FINRA rules with the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. . . .

Between March 22, 2018 and May 19, 2020, Barnett mismarked at least 74 mutual fund order tickets as unsolicited when he had solicited the trades. Barnett marked the order tickets as unsolicited when he made investment recommendations in connection with customers reallocations of their mutual fund portfolios. Barnett's mismarking of these orders caused LPL to make and maintain inaccurate books and records. 

Between April 2016 and July 2018, Kelly participated in private securities transactions outside the regular course or scope of Kelly's employment with IFG by recommending 19 investors to purchase promissory notes in an oil and gas drilling company, summarizing the investment for the investors, and arranging for some of the investors to fund the purchases through sales and money transfers from their IFG accounts. The promissory notes were securities. Collectively, these 19 individuals invested $688,000 in the company. These investors consisted of 16 of his IFG customers, including himself, and 3 other individuals who were not IFG customers. Kelly did not receive compensation for the investments. 

Kelly failed to provide any written or other form of notice to IFG prior to his participation in these transactions. Further, when asked on multiple annual firm attestation forms whether he had participated in private securities transactions, Kelly answered "no."

• Securities Industry Commentator
• Bill Singer